USD/JPY off seven-week lows on record-high Japanese trade deficit

The yen retreated from 7-week highs against the US dollar as data showed the Japanese trade deficit widened to a record in 2013.

USD/JPY hit a session high at 102.77 at 08:00 GMT, after which consolidation followed at 102.50. adding 0.15% on a daily basis. Support was likely to be received at January 24th low, 102.00, also the pairs weakest since December 6th, while resistance was to be encountered at January 24th high, 103.59.

The yen came under selling pressure after the Japanese Ministry of Finance reported today that the trade deficit of the nation widened to 11.5 trillion yen during the previous year, the highest on record. The Japanese trade deficit in 2013 was almost double the previous years amid devaluation in the currency and energy shipments, which increased the import bill.

The yen was also pressured by a widening gap in the interest rates between 10-year US Treasury bonds and comparable Japanese government bonds. The rate premium of US 10-year Treasury bonds over Japanese government debt widened to 209 basis points, above the five-year average of 163 basis points.

“The widening U.S.-Japan yield differentials will steer the yen to gradual weakness on top of yen selling amid trade deficits”, said Yunosuke Ikeda, the Tokyo-based head of foreign-exchange strategy at Nomura Securities Co., in a conference call today, cited by Bloomberg.

Bank of Japan has been purchasing more than 7 trillion JPY (68.4 billion USD) of government bonds each month in its struggle to achieve 2% inflation in two years since April 2013. There are growing concerns that BoJ will have to increase the scale of its asset-purchasing program this year, which puts heavy pressure on the yen.

Japan is in a process of recovery after a 15-year period of deflation.

Meanwhile, greenback’s demand continued to be underpinned by expectations for stimulus cuts at the upcoming FOMC’s meeting this week, which is scheduled to be held on January 28th-29th.

The Federal Open Market Committee (FOMC) will probably reduce the monthly pace of bond purchases from the current 75 billion USD by increments of 10 billion USD at every policy meeting to exit the program this year, according to the median estimates by experts in a survey by Bloomberg conducted on January 10th.

New home sales in the United States probably decreased 1.9% to the annualized level of 0.455 million units in December, according to the median forecast of economists, after sales reached 0.464 million units in the preceding month. The official report is due to be released at 15:00 GMT today. New home sales are a crucial indicator for current housing market conditions in the country, as better than expected figures will certainly provide support to greenback’s demand.

Elsewhere, EUR/USD touched a session high at 1.3717 at 09:20 GMT, after which consolidation followed at 1.3700, adding 0.17% for the day. Support was likely to be received at January 24th low, 1.3663, while resistance was to be met at January 24th high, 1.3778, also the pair’s highest since January 2nd.